1)Look at the Supply and Demand Schedules for Frisbees

Price controls practice AP Micro /

1) Look at the supply and demand schedules for Frisbees

Price ($) Quantity Demanded (Million) Quantity Supplied (Million) 11 1 15 10 2 12 9 4 9 8 6 6 7 8 3 6 10 1

a) What is the equilibrium price and quantity?

b) Barack Obama, a closet Frisbee enthusiast, wants to ensure higher profits for Frisbee manufacturers. He has the government pass a price floor of $2 above equilibrium. What is the new market price? How many Frisbees are sold? Is there a surplus or shortage? What is the surplus/shortage quantity?

c) The Ultimate Frisbee Alliance is upset with the new high prices and leads a march on Washington. Congress in response imposes a price ceiling at $1 below the former price floor (so $1 less than price in part b. What is the new price and quantity of Frisbees?

2) The Toledo arena holds a maximum of 40,000 people, as indicated in the graph above. Each year the circus holds eight performances, all of which are sold out. The market for tickets to the circus is shown in this graph:

(a) Analyze the effect on each of the following of the addition of a fantastic new death-defying trapeze act that increases the demand for tickets. (i) The price of tickets (ii) The quantity of tickets sold

(b) The city of Toledo institutes an effective price ceiling on tickets. Explain where the price ceiling would need to be set to be effective. Then, explain the impact of a price ceiling on each of the following. (i) The quantity of tickets demanded (ii) The quantity of tickets supplied

(c) In reality, will everyone who attends the circus pay the ceiling price set by the city of Toledo? Why or why not?

3) The market for apartments in San Francisco is shown below.

a. What is the equilibrium price and quantity of apartments in a market without government intervention?

b. Imagine you know the government put a price ceiling in place, and that you read afterward that the quantity of apartments is now at 1.8 million. What must the price ceiling be?

c. Does the price ceiling from b cause a surplus or a shortage? How much?

d. Shade the deadweight loss as a result of the price ceiling on the graph above.

e. What would be some other effects on the market for apartments (unintended consequences) not shown in this graph?

f. Now imagine the city eliminated the price ceiling, as it wasn’t working out (see “c” and “e” above). But San Francisco still wants to protect citizens, so it decided to enact a licensing system for landlords. Only landlords who pass the test can become official landlords, and the government only has only has resources to inspect 1.9 million apartments per year. That means the government only has 1.9 million certified licenses available. Given this new situation, identify the following:

f.i. The “wedge” between demand price and supply price

f.ii. What does the wedge represent?

f.iii. What’s the maximum fee for a license that the government could charge without reducing the number of landlords who want a license?